HP: it's all about the software, stupid

The hardware giant is to restructure again, at the cost of 27,000 jobs. But it is the vendor's software strategy that is now being questioned.

Profits declined 31 per cent in the second quarter; the company is planning 27,000 redundancies worldwide, or eight per cent of its workforce, and it is looking for savings of $3.5 billion a year (2.2 billion).

Whitman has said these savings will be ploughed back into R&D, one area where HP is still regarded as a world leader. But the continued restructuring and troubles at the company, including the departure of Autonomy founder Mike Lynch, are prompting observers to suggest far more radical action.

"Should SAP buy HP?" asks Ian Murphy, research analyst at Creative Intellect Consulting. "It would make sense and with HP continuing to haemorrhage jobs, they are increasingly looking like prey, not predator."

There would be savings through merging the companies' professional services businesses, but a combined group could keep its server hardware, in a model similar to that of Oracle/Sun, he says. The PC and printer arms could be sold off.

HP's restructuring is painful but necessary to restore market and customer confidence after last year.

Ray Wang, principal analyst at Constellation Research, argues that it is HP's failure to make the move to software that is counting against them. "HP's recent layoffs reflect the reality of not making the shift to software fast enough in the enterprise services play," he says.

"HP had a great start with efforts to move into business intelligence and big data with Knightsbridge, Vertica, and Autonomy, but it seems that those efforts to build out a strong enterprise software team have not progressed.

"Add the lack of good integration with [services arm] EDS, and this has become a tougher challenge than anyone at HP realized," he adds.

So HP's attempt to follow IBM's route away from hardware into software and services appears, if not stalled, to be stalling. Drastic action might now be needed to convince customers to stick with HP, and to convince markets that more radical steps still, such as a break-up of the business, is not the best option.

But this, suggests John Madden, principal analyst at Ovum, is something Whitman has yet to demonstrate.

"HP's restructuring is painful but necessary in order to restore market and customer confidence after last year," he says. "We've been down this road before, of course, and the market remains skeptical about how these operational changes will enable HP's stability, especially for its enterprise business.

"As of now we've seen the major pieces of Meg Whitman's restructuring and operations plan. The key missing piece is her long-term company vision and strategy.

"Even with this restructuring, the question still remains: just what kind of company does HP want to be next year, three years, or five years from now?"

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